There is no good evidence that China has reduced its exposure to the dollar. In fact, if you account for the higher dollar share of China's hidden reserves, its USD likely has increased since 2014. I am pretty sure that over the last year China hasn't shifted its reserves out of the dollar. It has shifted from US custodied Treasuries to offshore custodians and risk assets (Agencies, equities).  When China stops targeting 60% for the dollar share of its formal reserves, we will know.  The interesting question is what is the dollar share of China's shadow reserves -- and I think the answer is that it is a lot higher than the dollar share of China's formal reserves.

Related: Shadow Reserves — How China Hides Trillions of Dollars of Hard Currency and Great Power Conflict Puts the Dollar’s Exorbitant Privilege Under Threat and Pettis On Pozsar

Almost 90% of surveyed Americans say people shouldn’t be judged for moving back home, according to Harris Poll in an exclusive survey for Bloomberg News. It’s seen as a pragmatic way to get ahead, the survey of 4,106 adults in August showed. Covid-19 lockdowns in 2020 drove the share of young adults living with parents or grandparents to nearly 50%, a record high. These days, about 23 million, or 45%, of all Americans ages 18 to 29 are living with family, roughly the same level as the 1940s, a time when women were more likely to remain at home until marriage and men too were lingering on family farms in the aftermath of the Great Depression.

Related: Millions of US Millennials Moved in With Their Parents This Year and Young Adults in the U.S. Are Reaching Key Life Milestones Later Than in the Past and Americans’ Ideal Family Size Is Larger Than the Birthrate Suggests

Democrats have been posting special-election overperformances of that magnitude all year long, in all kinds of districts. And on average, they have won by margins 11 points higher than the weighted relative partisanship of their districts. The types of people who vote in low-turnout special elections tend to be different from the types of people who vote in regularly scheduled elections: Lower turnout generally means a more college-educated electorate, and college graduates have gotten more Democratic in recent years. That could be why special-election overperformance has consistently been a couple of points more Democratic than the House popular vote over the past three cycles. However, college graduates were disproportionately Democratic in 2020 and 2022 too, and Democrats didn’t consistently do this well in special elections in those cycles. So something seems to be different this time that the education realignment doesn’t fully explain.

Related: Is a Trump-Biden Rematch Inevitable? and Trump’s Electoral College Edge Seems to Be Fading and How to Interpret Polling Showing Biden’s Loss of Nonwhite Support

Patent concentration, which can affect diffusion, has risen over the past several decades with a concurrent surge in patent litigation cases. In the post-1980 period, a parallel trend concerning patents in the U.S. has been the dramatic increase in the number of patent cases filed, which some authors have dubbed the “patent litigation explosion.” The annual number of litigation cases filed per 100 granted patents rises from about 1.2 in the early 1990s to an average of about 1.5 between 1995 and 2010, before rising again to more than 1.8 between 2010 and 2015 and only receding marginally since then.

Related: Where Have All the "Creative Talents" Gone? Employment Dynamics of US Inventors and The Economics of Inequality in High-Wage Economies

Since 2009, manufacturing output per hour in the U.S. has grown just 0.2% a year, well below the economy as a whole and peer economies in Europe and Asia, except Japan. In motor vehicle manufacturing, the picture is especially bad: From 2012 through last year, productivity plummeted 32%, though some of this was no doubt due to pandemic disruptions.  Warehouses and hospitals can pass the cost of higher wages and reduced hours to customers without being undercut by foreign competitors. Manufacturers don’t have that luxury. That’s why Detroit is recoiling at the UAW’s demands. While their output per employee is among the highest of 11 global manufacturers ranked by consultants AlixPartners, so are their costs per vehicle. The lowest cost: China’s.

Related: Autoworkers Have Good Reason to Demand a Big Raise and Auto Union Boss Wants 46% Raise, 32-Hour Work Week in ‘War’ Against Detroit Carmakers and EV Boom Remakes Rural Towns in the American South

We discuss how Large Language Models (LLM) can improve experimental design, including improving the elicitation wording, coding experiments, and producing documentation. Second, we discuss the implementation of experiments using LLM, focusing on enhancing causal inference by creating consistent experiences, improving comprehension of instructions, and monitoring participant engagement in real time. Third, we highlight how LLMs can help analyze experimental data, including pre-processing, data cleaning, and other analytical tasks while helping reviewers and replicators investigate studies. Each of these tasks improves the probability of reporting accurate findings

Related: Centaurs and Cyborgs on the Jagged Frontier and Society's Technical Debt and Software's Gutenberg Moment and Generative AI at Work

Joe Biden is likely to be the Democratic nominee. I would put his chances in the range of 80 to 85%. Donald Trump is likely to be the Republican nominee. I would put his chances in the range of 75%. The chance of an average non-Hispanic white man of Biden’s age (80) dying in the next year is about 5%. Biden’s odds are presumably lower than this, however. Even if he’s lost a step or two, I feel comfortable asserting that his physical and mental health are better than that of the typical 80-year-old. However, there are a lot of medical events other than Biden literally passing away that might end his bid for a second term. Overall, I figure there’s a 10% chance that Trump loses the nomination in “typical” fashion, such as being caught from behind in Iowa, a 5% chance that a health-related issue ends his campaign, and a 10% chance that legal jeopardy forces Trump to reconsider or compels Republicans to turn on him, even though they haven’t so far.

Related: Five Reasons Why Biden Might Lose in 2024 and For Some Key Voters, Trump Has Become Toxic and How to Interpret Polling Showing Biden’s Loss of Nonwhite Support

Since the 1970s, trust in government has been consistently higher among members of the party that controls the White House than among the opposition party. Republicans have often been more reactive than Democrats to changes in political leadership, with Republicans expressing much lower levels of trust during Democratic presidencies; Democrats’ attitudes have tended to be somewhat more consistent, regardless of which party controls the White House. However, the GOP and Democratic shifts in attitudes from the end of Donald Trump’s presidency to the start of Joe Biden’s were roughly the same magnitude.

Related: Collapsing Social Trust is Driving American Gun Violence

The pandemic led to a surge in new business formations. What is striking to us is that this elevated level has continued post-Covid. According to data from the Census Bureau, in July, high-propensity business applications, which include all those that are more likely to become businesses with a payroll, were 40% higher than the average level in 2019.  While not all of these businesses survive (the number of business deaths also rose in 2022 according to the Bureau of Labor Statistics), the net impact still points to strong growth in business formation. Business applications each year seem to be driven by a different sector. At the start of the pandemic, retail trade saw the biggest surge, driven largely by the growing demand for e-commerce, according to commentaries from the Census Bureau.

Related: Surging Business Formation in the Pandemic: Causes and Consequences and The Startup Surge Continues: Business Applications on Track for Second-Largest Annual Total on Record and Creative Destruction After the Pandemic

To get rates back up to the 12% pre-pandemic level would require adding 2.7 million new housing units—more than the entire housing stock of the state of Maryland or more than 1.5 years of construction at 2022 rates—and leaving them all empty. Assume half occupancy and America needs 6.2 million new units—more than currently exist in Pennsylvania. If you assume that 75% of units will get filled on net then America needs more than 18 million additional housing units—roughly as many as exist in California and Washington state combined. Actual construction stood at only 1.4 million in the first half of 2023, failing to keep up with demand and leading to further declines in unoccupied housing rates—in other words, the structural shortage of housing is keeping prices high and vacancies down.

Related: Repeat After Me: Building Any New Homes Reduces Housing Costs For All and On the Move: Which Cities Have The Biggest Housing Shortage? and Have Rising Mortgage Rates Frozen the Housing Market?

All these areas clearly do have much higher WFH shares than the nation as a whole. What else do they have in common? One striking characteristic, which I highlighted in the top-50 table, is that most are located in central cities of metropolitan areas, which are designated as such based on population and how many people commute to jobs there. What’s more, two non-central cities on the list — Cupertino, California, and Redmond, Washington — happen to be home to the headquarters of the two most valuable companies in the world, Apple and Microsoft, and several others are also home to large corporate headquarters. Working at home seems to be most popular in places close to lots of offices and other places of employment.

'Related: Remote Work, Three Years Later and Work From Home and the Office Real Estate Apocalypse and Real-Estate Doom Loop Threatens America’s Banks

Using UN votes to condemn Russia’s invasion of Ukraine as a filter, Bloomberg Economics found that the global share of greenfield foreign direct investment going to countries that didn't condemn the invasion averaged only 15% in the last two years, down from 30% in the decade to 2019. China's share, including Hong Kong, fell to less than 2% in 2022 from nearly 11% on average over 2010-19. The data point to US and other Western companies investing more in like-minded countries. Between the second quarter of 2020 and the first quarter of this year, US companies’ greenfield investments in China plunged 57.9% and those by European firms dropped 36.7% versus the five years leading up to the pandemic, an updated IMF analysis shared with Bloomberg found. Investments from the rest of Asia into China were down by more than two-thirds.

Related: Setser On Rumors Of Decoupling and How America Is Failing To Break Up With China and Global Firms Are Eyeing Asian Alternatives to Chinese Manufacturing

Xin Meng of the Australian National University appears to refute the “demographic dividend” as an explanation for China’s economic success.  Her analysis showed that between 1982 and 2015 China’s working-age population, defined as those aged between 16 and 65, grew from 600m to 1bn. During this same period, however, labour-force participation dropped from 85% to just over 70%. Much of the decline came from those with an urban hukou. Unlike holders of rural hukou, urbanites were subjected to mandatory retirement at the age of 55 for women and 65 for men. Compulsory education and greater university enrolment kept under-25s out of the workforce.

Related: Population Aging and Economic Growth: From Demographic Dividend to Demographic Drag? and The Chinese Century Is Already Over and The Neoclassical Growth of China

For decades now, the Chinese government has encouraged university enrollment, pushing the number of students in higher education from 22 million in 1990 to 383 million in 2021.  During the pandemic, it pressed even harder, expanding graduate-school capacity.  Master’s-degree candidates rose by 25 percent in 2021.  China’s Ministry of Education estimated that 10.76 million college students would graduate in 2022, 1.67 million more than in 2021—and it expects a further large rise in 2023. The message for China’s policymakers is clear: boosting graduate numbers while throttling services and subsidizing buildings is bad economics and worse social policy. 

Related: Why Has Youth Unemployment Risen So Much in China? and China Cannot Allow Jobless Young To ‘Lie Flat’ and China’s Defeated Youth

The path of policy rates priced into futures markets in major Advanced Economies became more in line with the cautious tone of central banks. The Federal Reserve and the ECB raised policy rates further in July, and emphasized in their communications that future decisions would be data-dependent. Officials also indicated that, while rates might not rise much more, they could stay at their current levels for a prolonged period if inflation remained above target. In accordance with these messages, futures markets in both in the US and the euro area priced in higher rates for 2024 than they had just a few months before. And the expected peak in policy rates was pushed higher and later. That said, investors still seemed to anticipate rate cuts as early as the second quarter of 2024, and much deeper in the US than the euro area.

Related: Adrift at Sea and What Have We Learned About the Neutral Rate? and Measuring the Natural Rate of Interest After COVID-19

While Treasuries remain the most liquid security in the world, they are structurally becoming less liquid. The average daily cash transactions in Treasuries has not come close to scaling with the overall growth in issuance. Although average daily cash volumes have increased slightly in recent years to $700b, that increase is in part due to the activity of principal trading firms whose strategy is to profit from small intraday fluctuations in price. These firms account for 20% of cash market volumes, but they disappear when volatility picks up so their provision of liquidity is illusory. Excluding their participation, cash market activity would be progressively thinning relative to the steady growth in issuance.

Related: Living with High Public Debt and Raising Anchor and Resilience Redux in the US Treasury Market

The hand-wringing about the Great Maturity Wall appears to have been wildly overdone. A year ago, the bear case held that interest rates were rising and the economy was deteriorating at the same time that a surfeit of high-yield debt was coming due. But ever since that point, companies have been quietly extending their debt calendars. At the start of 2023, high-yield issuers had about $878.4 billion in significant dollar-denominated bond and loan issues coming due through 2025. And since then, issuers have whittled the number down by about 38% to $542.3 billion. Most signs suggest they will continue to make plodding progress.

Related: Rates Are Up. We’re Just Starting to Feel the Heat and A Default Cycle Has Started and Credit Normalization

For the last several months, I have been part of a team of social scientists working with Boston Consulting Group, turning their offices into the largest pre-registered experiment on the future of professional work in our AI-haunted age. For 18 different tasks selected to be realistic samples of the kinds of work done at an elite consulting company, consultants using ChatGPT-4 outperformed those who did not, by a lot. On every dimension. Every way we measured performance. Consultants using AI finished 12.2% more tasks on average, completed tasks 25.1% more quickly, and produced 40% higher quality results than those without. [AI] works as a skill leveler. The consultants who scored the worst when we assessed them at the start of the experiment had the biggest jump in their performance, 43% when they got to use AI. The top consultants still got a boost, but less of one.

Related: Society's Technical Debt and Software's Gutenberg Moment and Generative AI at Work and AI, Mass Evolution, and Weickian Loops

The increase in disability reporting has been especially pronounced among people aged 25-54 (the so-called prime-age population). This group has also seen its disability rate rise by about 0.9pp but from a lower base. This increase brings the prime-age disability rate to 6.9% over the last three months, corresponds to nearly 1.3mm additional prime-age people with disabilities, and represents a 16% increase in that population. Even though cognitive difficulties are more common among older people, the increases in cognitive difficulties seen since the onset of the pandemic have been driven by younger people. Since February 2020, rates of cognitive difficulties have increased by about 1.1 percentage points among people 16-24 and 25-34 and by 0.7 percentage points among people 35-44, in each case representing at least a 25 percent increase in prevalence.

Related: The Teen Mental Illness Epidemic is International, Part 1: The Anglosphere and Youth Risk Behavior Survey

Italian Prime Minister Giorgia Meloni has appealed for greater European support as her country confronts a surge of people fleeing north Africa, amid growing tensions between Rome and other EU capitals over migration policy. More than 12,000 people have reached Italy in the past week, mostly to the island of Lampedusa, authorities said, with thousands more awaiting to make the relatively short journey from Tunisia’s port city of Sfax to the Italian island. The increased influx is a political headache for Meloni, who was elected on a promise to stop the flow of illegal migration to Italy. Instead, the number of those arriving on Italian shores has surged to more than 128,600 so far this year, up from around 66,200 at the same time last year.

Related: Saudi Forces Accused of Killing Hundreds of Ethiopian Migrants and How a Vast Demographic Shift Will Reshape the World and Demography Is Destiny in Africa

The over-80s for the first time accounted for more than 10% of Japan’s population, according to a government report.  Japan’s persistently low birthrate and long lifespans have made it the oldest country in the world in terms of the proportion of people aged over 65, which this year hit a record of 29.1%. Japan’s overall population fell by about half a million to 124.4 million, according to the report. It’s expected to tumble to less than 109 million by 2045.

Related: Inflation in The *Very* Long Run and Japan Demographic Woes Deepen as Birthrate Hits Record Low and More Than 40% of Japanese Women May Never Have Children

Meanwhile, spending at stores, restaurants, and online excluding grocery stores and gas stations has been rising at a yearly rate of 7% each month on average since the spring, compared to 4% a year in 2017-2019. That is consistent with underlying wage growth, which is still rising about 2 percentage points faster than before the pandemic, despite the normalization in job market churn, the declining wage bump for people switching jobs, and the slowdown in the growth of posted wages on job boards.

Related: Breaking Down the Sources of US Economic Resilience and Soft Landing Summer and The Unresolved Tension Between Prices and Incomes

The United Auto Workers union for the first time ever went on strike at all three Detroit car companies, with about 12,700 workers hitting the picket lines shortly after midnight Friday in targeted work stoppages at plants in Michigan, Ohio, and Missouri. The UAW’s plans for targeted work stoppages would bring only a fraction of the overall workforce off assembly lines. That strategy would help preserve the union’s $825 million fund more than a full strike of all 146,000 workers, but stymie output and disrupt automakers’ production planning. It also could prove risky, because employees who remain on the job likely would be working without a contract, a prospect that has sparked concern among some members.

Related: Autoworkers Have Good Reason to Demand a Big Raise and The Q4 Pothole: Student Loans, Shutdown, and Strikes and EV Boom Remakes Rural Towns in the American South

Unions’ declining vote share combined with less dominant Democratic performances with union household voters have made all three Blue Wall states more competitive: after voting reliably Democratic from 1992 to 2012, each narrowly broke for Trump in 2016. Although Biden won all of them back in 2020, he did so by far smaller margins than Obama earned in 2012. In 2020, white, non-college voters constituted a majority of the electorate in Michigan (54%), Pennsylvania (53%), and Wisconsin (58%). While this demographic is still likelier than not to vote Republican, non-college white voters who are unionized were less likely to back Trump in 2020 compared to those who were not. And while these voters are often more culturally moderate or even conservative, many embrace economic populism and highly approve of unions, giving Biden and Democrats an opportunity to make greater inroads.

Related: Flanked by Union Allies, Biden Touts $36 Billion Pension Bailout and The ‘Summer of Strikes’ Isn’t Living Up to the Hype

By 2030 copper and nickel demand could rise by 50-70%, cobalt and neodymium by 150%, and graphite and lithium six- to seven-fold. All told, a carbon-neutral world in 2050 will need 35m tonnes of green metals a year, predicts the International Energy Agency. Industry oracles asked by The Economist predict copper-supply gaps of 2m-4m tonnes, or 6-12% of potential demand, by 2030. They also foresee a shortfall of lithium of 50,000-100,000 tonnes, a 2-4% deficit. Nickel and graphite—plentiful in theory—could cause problems because batteries require pure material. There are too few smelters to refine bauxite into aluminum. Outside China, next to no one produces neodymium.

Related: Glencore Says This Time Is Different for Coming Copper Shortage and Lithium Discovery in US Volcano Could be Biggest Deposit Ever Found and What Have We Learned About the Neutral Rate?

Recent studies from the US, Sweden, and Finland all demonstrate that although most people who move directly into new unsubsidised housing may come from the top half of earners, the chain of moves triggered by their purchase frees up housing in the same cities for people on lower incomes.  The US study found that building 100 new market-rate dwellings ultimately leads to up to 70 people moving out of below-median income neighbourhoods, and up to 40 moving out of the poorest fifth. Those numbers don’t budge even if the new housing is priced towards the top end of the market.  It’s a similar story in the American Midwest, where Minneapolis has been building more housing than any other large city in the region for years, and has abolished zones that limited construction to single-family housing. Adjusted for local earnings, average rents in the city are down more than 20% since 2017, while rising in the five other similarly large and growing cities.

Related: On the Move: Which Cities Have The Biggest Housing Shortage? and A $100 Billion Wealth Migration Tilts US Economy’s Center of Gravity South and Young Families Have Not Returned to Large Cities Post-Pandemic

First, we expect the resumption of student loan payments to subtract 0.5pp from quarterly annualized GDP growth. Second, the federal government looks more likely than not to temporarily shut down. A government-wide shutdown would reduce quarterly annualized growth by around 0.2pp for each week it lasted. Third, we estimate that reduced auto production from a potential UAW strike would reduce quarterly annualized growth by 0.05-0.10pp for each week it lasted, if all three companies currently undergoing contract negotiations are impacted. We expect quarterly annualized GDP growth to slow from +3.1% in Q3 to +1.3% in Q4 (vs. consensus of +2.9% and +0.6%). We expect the slowdown to be shallow and short-lived, with GDP growth rebounding to +1.9% in Q1 (vs. consensus of +0.1%) as these temporary drags abate and income growth reaccelerates on the back of continued solid job growth and rising real wages.

Related: Soft Landing Summer and Autoworkers Have Good Reason to Demand a Big Raise and The Economic Impact of the Student Loan Restart

The impact on markets of the government’s expanded financing need is largely still ahead of us. Over the past year, the government has funded essentially all of the increase in its deficit by issuing T-bills and spending down its cash reserves rather than significantly ramping up the issuance of duration to the market. As a result, Treasury issuance hasn’t needed to entice money out of other cash and asset markets, and thus the impact of the expanded deficit on liquidity has been minimal thus far. We think this pressure is delayed rather than eliminated: looking forward, we expect that the Treasury will shift its mix of issuance toward more duration, as the budget deficit remains elevated and the share of bills outstanding rises through the range that the Treasury generally prefers to target (though there is plenty of flexibility around the precise proportion).

Related: Soft Landing Summer and Has the Fed Tightened Enough? Guideposts to Consider and DM Debt - How to Move Mountains

The chart shows the % of Black families that are in three income groups, using total money income data. The data is adjusted for inflation. The progress is dramatic. In 1967, the first year available, half of Black families had incomes under $35,000. By 2022 that number had been cut in half to just one quarter of families (the 2022 number is the lowest on record, even beating 2019). Twenty-five percent is still very high, especially when compared to White, Non-Hispanics (it’s about 12 percent), but it’s still massive progress. It’s even a 10-percentage point drop from just 10 years ago. And Black families haven’t just moved up a little bit: the “middle class” group (between $35,000 and $100,000) has been pretty stable in the mid-40 percentages, while the number of rich (over $100,000) Black families has grown dramatically, from just 5% to over 30%.

Related: U.S. Incomes Fall for Third Straight Year and Who Won the Cold War? Part I

Last week Huawei quietly unveiled the Mate 60 Pro—its new smartphone that apparently comes with 5G capabilities. According to a teardown by industry research firm TechInsights, the main chip inside this new phone is made using technology comparable to the so-called 7nm process. It is possibly made by China’s leading chip foundry  Semiconductor Manufacturing International (SMIC).  That is still generations behind the market leaders. For example, TSMC has already been mass-producing more advanced 3nm chips. But that nonetheless is still a big step forward, especially given the limitations China’s chip makers are facing. While SMIC has no access to the most cutting-edge extreme ultraviolet lithography machines, it could use some older equipment to make advanced chips, likely using a process called multipatterning.

Related: China Imports Record Amount of Chipmaking Equipment and Japan to Join US Effort to Tighten Chip Exports to China

Put simply, Kirin 9000S is a better-designed chip than the West realizes. It has solid power and performance. Even with the lackluster export controls, this is a leading-edge chip that would be near the front of the pack in 2021, yet was done with no access to EUV, no access to cutting-edge US IP, and intentionally hampered. We cannot overstate how scary this is. There are steps that could be taken to ensure that China does not develop the ability to mass-manufacture the sorts of chips needed for high-end military applications in the coming year. Half measures will not work, but a full-scale assault will make it so the cost of replicating the semiconductor supply chain domestically is neigh on impossible. While we aren’t advocating for any of these specifically, it is clear the West can still stop China’s rise if decisive action is taken.

Related: Huawei Building Secret Network for Chips, Trade Group Warns and China Imports Record Amount of Chipmaking Equipment and Japan to Join US Effort to Tighten Chip Exports to China

We had 2 consecutive unqualifiedly good CPI reports. I was hoping for a 3rd but this one is only qualifiedly good. Not a huge concern but some. I'm focused on core CPI which grew at a 3.4% annual rate after 2 months <2%. Here is swapping new rents instead of all rents for core. The most reassuring of the bunch because new rents are actually falling. Is a useful gut check but I would not actually assume that we're going to see substantial falls in all rents anytime soon. Overall I still feel better than I did a few months ago about the possibility of a soft landing. But I feel a bit worse than I did yesterday. And if you over-updated based on the noisy June and July data you should probably be over-updating back again based on the August data. One month of data will not and should not change what the Fed does next week. But if we get two more months like this then I would hope they hike again at the December meeting.

Related: The Unresolved Tension Between Prices and Incomes and Has the Fed Tightened Enough? Guideposts to Consider

Using a debt accounting exercise, we show that periods of sustained debt reduction are typically driven by strong primary balances and above-average growth. Following 1980, inflation has played little role in debt reductions. Current fiscal projections and current market interest rates on average do not point to declines in debt-to-GDP ratios across developed markets. We estimate that market implied r - g, the difference between real interest rates and growth rates, is now positive for many countries. Japan provides an example of high debt peaceably coexisting with low interest rates. However, given current high inflation, wider deficits, and rising interest costs, we think it unlikely that we return to the era of structurally low interest rates in the US, UK, or Europe. As a result, we see the risks to term premia skewed higher as fiscal risks simmer.

Related: Living with High Public Debt and American Gothic and Is a U.S. Debt Crisis Looming? Is it Even Possible?

The decline in marriage and the rise in the share of children being raised in a one-parent home has happened predominantly outside the college-educated class. Over the past 40 years, while college-educated men and women have experienced rising earnings, they continue to get married, often to one another, and to raise their children in a home with married parents. Meanwhile at the same time, the earnings among adults without a college degree have stagnated or risen only a bit. And these groups have become much less likely to marry and more likely to set up households by themselves.So just mechanically, these divergent trends in marriage and family structure mean that household inequality has widened by more than it would have just from the rise in earnings inequality.

Related: US Births Are Down Again, After the COVID Baby Bust and Rebound and Wage Inequality and the Rise in Labor Force Exit: The Case of US Prime-Age Men and Bringing Home the Bacon: Have Trends in Men’s Pay Weakened the Traditional Family?

Americans’ inflation-adjusted median household income fell to $74,580 in 2022, declining 2.3% from the 2021 estimate of $76,330, the Census Bureau said Tuesday. The amount has dropped 4.7% since its peak in 2019. Wage growth for the typical worker outstripped inflation starting in December 2022, with inflation-adjusted wages rising about 3% in July, according to data from the Atlanta Fed Wage Tracker and the Labor Department.

Related: Jason Furman On Employment Cost Index and Real Wage Growth at the Individual Level in 2022 and The Unexpected Compression: Competition at Work in the Low Wage Economy

Brussels will launch an anti-subsidy investigation into Chinese electric vehicles that are “distorting” the EU market. The probe could constitute one of the largest trade cases launched as the EU tries to prevent a replay of what happened to its solar industry in the early 2010s when photovoltaic manufacturers undercut by cheap Chinese imports went into insolvency. If found to be in breach of trade rules, manufacturers could be hit with punitive tariffs.

Related: China Set to Overtake Japan as World’s Biggest Car Exporter and China’s Auto Export Wave Echoes Japan's in the ’70s

The positive-sum vision of global economic integration is that rising production in one place does not need to displace existing production elsewhere because demand and living standards will rise commensurately. Novo Nordisk’s scientists invented something new and valuable, simultaneously creating both supply and demand. They did not pivot from selling to Danes to selling to Americans. The negative-sum vision is the one of businesses burdened by persistent “overcapacity” (really, underconsumption) are forced to fight for market share in a world without growth. The U.S. effectively preempted the influx of Chinese-made electric vehicles with the Inflation Reduction Act, which boosts total demand while reserving a share for local producers. Europe is far more exposed and has yet to formulate a response. The common belief in certain circles that Europeans are more “open to trade” than Americans may not survive this experience.

Related: How Weight Loss Drugs Stopped a Danish Recession and China Set to Overtake Japan as World’s Biggest Car Exporter

By my calculations, if the government could directly or indirectly transfer roughly 1.5% of GDP every year to households, it could drive growth in household income – and with it, household consumption – to around 7% annually. This, in turn, could generate GDP growth of 4-5% even as investment growth dropped sharply. The arithmetic of rebalancing is unassailable. Given its status as the world’s second-largest economy, and by far the world’s largest investor, China simply cannot maintain its current investment share of GDP while continuing to grow relative to the rest of the world.

Related: Can China’s Long-Term Growth Rate Exceed 2–3 Percent? and Chinese Professor Says Youth Jobless Rate Might Have Hit 46.5% and China Cannot Allow Jobless Young To ‘Lie Flat’

For the first time, the new iPhone model you buy on the launch day could be made in India. Apple plans to make the India-built iPhone 15 available in the South Asian country and some other regions on the global sales debut day, people familiar with the matter said. While the vast majority of iPhone 15s will come from China, that would be the first time the latest generation, India-assembled device is available on the first day of sale, they said, asking not to be identified as the matter is private.

Related: Apple India iPhone Output Soars to $7 Billion in China Shift and Top Apple Supplier Foxconn Plans Major India Expansion and Apple’s Complex, Secretive Gamble to Move Beyond China

The federal budget deficit was $1.5 trillion in the first 11 months of fiscal year 2023, the Congressional Budget Office estimates—$0.6 trillion more than the shortfall recorded during the same period last year. Revenues were 10% lower and outlays were 3% higher from October through August than they were during the same period in fiscal year 2022. Receipts collected through August 2023, net of refunds, were about $350 billion less than CBO projected, mainly because of smaller-than-anticipated collections of individual and corporate income taxes.  Net outlays for interest on the public debt rose by $149 billion (or 30 percent), mainly because interest rates are significantly higher than they were in the first 11 months of fiscal year 2022.

Related: The 2023 Long-Term Budget Outlook and Interest Costs Will Grow the Fastest Over the Next 30 Years and US Fiscal Alarm Bells Are Drowning Out a Deeper Problem

While the vast majority of U.S. mortgages are 30 year fixed rate, many other countries rely on either variable rate or short dated fixed rate mortgages. U.S. mortgage debt servicing ratios have thus remained around historical lows due to robust wage growth and a large existing stock of mortgages taken out at low rates. In contrast, households in many other countries are beginning to see their disposable income disappear. The dollar strengthened significantly in 2022 as the Fed moved more aggressively than other major central banks, but sold off when other countries caught up. The scenario may replay in a slightly different way as interest rate differentials widen because other central banks retreat first.

Related: Soft Landing Summer and Has the Fed Tightened Enough? Guideposts to Consider and  The Case for "Higher for Longer": Prices are Disinflating, But Not Wages (Yet)

Using a measure of nonfinancial corporate profits from the national income accounts [before tax profits with capital consumption adjustment] we find that nonfinancial corporate profit margins, or profits over gross value added, increased sharply to about 19% in 2021 Q2 and slipped back to 15% in 2022 Q4, compared to about 13% in 2019 Q4. Our analysis shows that much of the increase in aggregate profit margins following the COVID-19 pandemic can be attributed to (i) the unprecedented large and direct government intervention to support U.S. small and medium-sized businesses and (ii) a large reduction in net interest expenses due to accommodative monetary policy.  Without the historically outsized government fiscal intervention and accommodative monetary policy, non-financial profit margins during 2020-2021 would have been more in line with past episodes of large economic downturns.

Related: The Curious Incident of the Elevated Profit Margins and "Greedflation" and the Profits Equation

China is set to become the world’s biggest car exporter this year, overtaking Japan. Driving China’s global ascendancy are deep structural problems in the domestic auto industry, which threaten to upend car markets across the world. A stark mismatch between production at Chinese factories and local demand has been caused, in part, by industry executives mis-forecasting three key trends: the rapid decline of internal combustion engine car sales, the explosion in popularity of electric vehicles and the declining need for privately owned vehicles as shared mobility booms among an increasingly urbanised Chinese population. The result has been “massive overcapacity” in the number of vehicles produced in factories across the country, said Bill Russo, former head of Chrysler in China and founder of advisory firm Automobility. “We have an overhang of 25mn units not being used.”

Related: China’s Auto Export Wave Echoes Japan's in the ’70s and Can Volkswagen Win Back China? and How China Became A Car-Exporting Juggernaut

When the core inflation rate averages above 4%, the stock-bond correlation has been positive with few exceptions. Core inflation has averaged 4.5% for the past three years and is currently 4.7%.  Even in periods of high stock-bond correlations, stocks, and bonds can be negatively correlated over shorter periods. In fact, over the first eight months of this year, stocks and bonds moved opposite one another in May, June, and July. This also helps explain how in the 1970s during a period of sustained positive stock-bond correlations, Treasurys still had positive returns in recessions.  The stock-bond correlation can be seen as an indicator of what is the dominant risk—inflation or growth—and how it is changing.

Related: Stock-Bond Correlations and Do Stocks Always Outperform Bonds?

Mr. Trump’s made huge gains among white voters without a college degree in 2016, a group that was overrepresented in the key Northern battleground states. The polls so far this cycle suggest that the demographic foundations of Mr. Trump’s advantage in the Electoral College might be eroding. Mr. Biden is relatively resilient among white voters, who are generally overrepresented in the battleground states. Mr. Trump, meanwhile, shows surprising strength among nonwhite voters, who are generally underrepresented in the most critical battleground states. As a consequence, Mr. Trump’s gains among nonwhite voters nationwide would tend to do more to improve his standing in the national vote than in the battleground states. Overall, 83% of voters in Wisconsin, Michigan, and Pennsylvania were white in the 2020 election compared with 69% of voters elsewhere in the nation.

Related: Consistent Signs of Erosion in Black and Hispanic Support for Biden and How to Interpret Polling Showing Biden’s Loss of Nonwhite Support and Can Democrats Survive the Looming Crisis in New York City’s Outer Boroughs?

Twelve insurers that write homeowners coverage in Louisiana were declared insolvent between July 2021 and February 2022, according to the Insurance Information Institute. Those closures sent insurance prices spiraling out of control, in both absolute terms and also in prices relative to local median incomes that are among the lowest in the nation. The average premium rose 6.7% in 2021 and then 18.5% in 2022, according to the Louisiana Department of Insurance. Louisiana Citizens Property Insurance Corp., the state-backed insurer of last resort, went from 45,000 policies in 2020 to 130,000 currently. That’s despite the fact that, by law, it charges 10% above market rate and raised rates 65% at the beginning of this year.

Related: Analyzing State Resilience to Weather and Climate Disasters and How a Small Group of Firms Changed the Math for Insuring Against Natural Disasters and Home Insurers Are Charging More and Insuring Less

The latest government data released just last month points to a second year of increases in 2022 after years of declines. The trend is sparking resentment as house prices in the top 10 rural counties that have seen the biggest population increases surged more than 40% over the past three years. The number of people living in non-metro areas outgrew the urban population for the first time in three decades in 2021, and the rural population expanded again last year. But growth wasn’t evenly distributed, with the top 10 counties with the largest population gains growing by an average 5%, according to Census data. That’s more than the national average of 0.4%.

Related: Young Families Have Not Returned to Large Cities Post-Pandemic and Tax Data Reveals Large Flight of High Earners from Major Cities During the Pandemic

Sweden, which has applied for Nato membership, announced on Monday that it planned to raise defense spending by more than  25%  to meet the military alliance’s target of 2% of GDP.  Currently, only 11 of 31 members do.  Persuading voters of the sacrifices required to make such commitments a reality represents a seismic reordering of the budget and electoral priorities. In Denmark, the government opted to fund its increase in public spending by cancelling a public holiday — to much chagrin from voters. "Leaders have signed up to a generational shift in defence policy. But I do wonder if they fully understand, or have told their finance ministers,” a senior Nato official said.

Related: The Age-Old Question: How Do Governments Pay For Wars? and The Cost of the Global Arms Race and Military Briefing: Ukraine War Exposes ‘Hard Reality’ of West’s Weapons Capacity

The federal deficit for the first 3/4 of the fiscal year 2023 was almost 3x as high as a year before. Very little of it was the result of new spending programs (although money is starting to flow out the door under the Biden administration’s industrial policies).  It was mainly about two things: a sharp fall in tax receipts and rising interest payments. What’s happening on taxes is that the federal government in effect got a windfall from stock prices and inflation, which is now going away. We’re not looking at any fundamental deterioration. The U.S. government really shouldn’t be running budget deficits this big at full employment. Yet we don’t want to reduce deficits by cutting essential spending. America collects a lower share of its income in taxes than other major economies, so more revenue — partly from the rich, but also from the middle class — would be a reasonable policy.

Related: Is a U.S. Debt Crisis Looming? Is it Even Possible? and American Gothic and Living with High Public Debt

The hype around the “Magnificent 7” stocks [Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla] that have driven the stock market this year is reminiscent of the dot.com era, which ended with a spectacular crash. However, there are two reasons why today’s developments seem less worrying: The rise of hyped stocks was more extreme in the Dot.com era, as was the rise of the rest of the market. While today’s situation is exceptional, with seven stocks accounting for nearly 30% of the total value of the S&P 500, the rule in the past has been that only a few stocks generated most of the value creation of the stock market in the US and internationally.

Related: 7 or 493 Stocks: What Matters for the S&P 500? and Birth, Death, and Wealth Creation and Mr. Toad's Wild Ride: The Impact Of Underperforming 2020 and 2021 US IPOs

We calculate net global stock market wealth creation of $US 75.7 trillion btw 1990 and 2020.  Wealth creation is highly concentrated. Five firms (0.008% of the total) with the largest wealth creation during the January 1990 to December 2020 period (Apple, Microsoft, Amazon, Alphabet, and Tencent) accounted for 10.3% of global net wealth creation. The best-performing 159 firms (0.25% of total) accounted for half of global net wealth creation. The best-performing 1,526 firms (2.39% of the total) can account for all net global wealth creation. Skewness in compound returns is even stronger outside the U.S. The present sample includes 46,723 non-U.S. stocks. Of these, 42.6% generated buy-and-hold returns measured in U.S. dollars that exceed one-month U.S. Treasury bill returns over matched horizons. By comparison, 44.8% of the 17,776 U.S. stocks in the present sample outperformed Treasury bills.

Related: Birth, Death, and Wealth Creation and More Bang for Your Buck and The Economics of Inequality in High-Wage Economies

Demand for Ozempic (a diabetes drug often sought for weight loss—though not FDA-approved for that purpose) and Wegovy (the new drug explicitly approved for treating obesity), is so strong that it functionally prevented a recession in Denmark—headline GDP is up roughly 1.1% over the last year, but excluding the pharmaceutical industry it’s down -0.9%, meaning drugmakers alone have added roughly 2% to Danish economic growth. Booming exports and high dollar earnings are allowing Danmarks Nationalbank—the Danish Central Bank—to keep rates lower than they otherwise would in order to maintain their currency peg to the Euro. Novo Nordisk, the Danish pharmaceutical giant has rapidly become the most valuable publicly traded company in Europe. Sales have risen 30% in the first half of this year, profits are up 40%, and the company is having to ration supply as production struggles to keep up with growth in orders.

Related: More Bang for Your Buck

We built a statistical model to predict the monthly consumer-sentiment index between 1980 and 2016 using a broad battery of economic data. A combination of 13 variables, including inflation, unemployment and petrol prices explained 86% of the variation in the index in this period, a very good fit. Before the pandemic, the relationships between these indicators and consumer sentiment were relatively stable. Although Americans report being worried about their finances, they are behaving as flush as ever—and in economic forecasting, actions speak louder than words. When used to project future spending rather than consumer sentiment, the same battery of economic variables has fully maintained its forecasting power since 2020. In contrast, since covid began, the correlation between sentiment and both current and future spending has vanished.

Note that this is a deceleration of the rate of increase. So if an item had 5% price growth and 1% quantity growth at the end of 2022, and then it had a 3% price growth and 2% quantity growth ending July 2023, it would show up as (-2,+1), or on the bottom right quadrant. It would be categorized as supply-increasing in this exercise, as the rate of price increases fell while the rate of quantity increases picked up. At the moment, the inflation story is exactly what a “soft landing” would have predicted. A combination of resolving supply shocks and a subtle decrease in demand has driven inflation down dramatically, with no cost to the level of employment.

Related: The Relationship between Consumption Growth and Inflation and What We’ve Learned About Inflation and The Unresolved Tension Between Prices and Incomes

An estimated 20 to 40 million tonnes of lithium metal lie within a volcanic crater formed around 16 million years ago. This is notably larger than the lithium deposits found beneath a Bolivian salt flat, previously considered the largest deposit in the world.  Thomas Benson, a geologist at Lithium Americas Corporation expects to begin mining in 2026. It will remove clay with water and then separate out the small lithium-bearing grains from larger minerals by centrifuging. The clay will then be leached in vats of sulfuric acid to extract lithium.

Related: Tesla’s Lithium Lead at Risk as Rivals Make Supply Deals and Chile’s Move to Control Lithium Alarms Industry and China’s Auto Export Wave Echoes Japan's in the ’70s

Vietnam has upgraded its relationship with the US to the highest level.  The US signed a “comprehensive strategic partnership” with the south-east Asian country on Sunday after President Joe Biden arrived in Hanoi from New Delhi, where he had attended the G20 summit. The symbolic but significant change, which follows years of lobbying by Washington, raises the US by two levels to the top status in Vietnam’s bilateral ties hierarchy. The status is one previously reserved only for China, Russia, India and, as of last year, South Korea. Vietnam had long avoided the move for fear of upsetting Beijing. As well as having security implications, such as potential defence co-operation, the new US status also carries economic importance, especially in crucial industries such as semiconductors.

Related: Vietnam Boots UK Out of Top Seven US Trading Partners and War, AI and Climate Change Shake Up $32 Trillion in Global Trade and Globalization Isn’t Dead. But It’s Changing

During a meeting on Saturday on the sidelines of the Group of 20 summit in India, Giorgia Meloni told Chinese Premier Li Qiang that Italy plans to withdraw from Chinese President Xi Jinping’s signature Belt and Road Initiative while still looking to maintain friendly relations with Beijing, according to a person familiar with the matter, who asked not to be named. Italy officially signed up for the pact in 2019.

Related: Italy Intends to Exit China Belt and Road Pact as Relations Sour and China As an International Lender of Last Resort

Nationally, the real cost of [weather and climate]  disasters has risen from $20B per year in the 1980s to nearly $95B per year during the period 2010–19. In 2021, damages increased to about $153B. Costs were absorbed by four entities: property insurers (48%), uninsured or underinsured homeowners, businesses, and agricultural entities (37%), the federal government (11%), and state and local governments (4%). If property insurers were to exit certain markets or decrease coverage in states with greater exposure to physical risks due to decreased profitability, a larger share of damages would not be fully insured. Two major insurers recently announced that they will no longer accept new applications for business and personal property insurance coverage in California, citing increasing wildfire risk as a key factor in that decision. In addition, several major hurricanes during 2020-22 forced numerous insurance companies into bankruptcy in Louisiana and Florida.

Related: Home Insurers Are Charging More and Insuring Less and Why California and Florida Have Become Almost Uninsurable and How a Small Group of Firms Changed the Math for Insuring Against Natural Disasters

While the global economy keeps growing over time, the NZE Ambition [net zero emissions] scenario results in a slowdown of GDP growth, both between 2019 and 2030 and between 2030 and 2050. The average global GDP growth rate goes from 2.3% per annum in the Baseline between 2019 and 2030 to 2.0% and decreases from 2.1% between 2030 and 2050 in the Baseline scenario to 1.9% in the NZE Ambition scenario. This leads to a reduction of global GDP compared to Baseline by 2.6% in 2030 and 5.6% in 2050.

Related: Growing Pains: The Renewable Transition in Adolescence and What Have We Learned About the Neutral Rate?

High interest rates have prompted homeowners to stay put rather than buy new homes and take on more expensive mortgages, resulting in an unusually low inventory of homes for sale. Sales of previously owned homes are now down about 36% from January 2022. But prices are generally holding firm outside of a few trouble spots.

Related: The "New Normal" Mortgage Rate Range and The Great Pandemic Mortgage Refinance Boom and Have Rising Mortgage Rates Frozen the Housing Market?

Looking back over the last few decades, there’s a clear relationship between the racial turnout gap — the difference between white and Black turnout — and the proportion of Black registered voters who back Democrats in pre-election polls since 1980. Or put differently: When Black voters don’t support Democrats, they tend not to vote. It’s possible that the Black voters who back Mr. Trump in the polls today will ultimately show up for him next November. But for now, when I see Mr. Biden’s share among Black voters slip into the 60s and 70s in the polls, I mostly see yet another decline in the Black share of the electorate, at least “if the election were held today.” If there’s any good news for Mr. Biden here, it’s that the election is still 14 months away.

Related: Consistent Signs of Erosion in Black and Hispanic Support for Biden

Defense Chief General Anil Chauhan — India’s top military commander — commissioned a study to examine the wider impact of any war over the island that also involves the US and its allies, and what action India could take in response.  One option the Indian military will study involves serving as a logistics hub to provide repair and maintenance facilities for allied warships and aircraft, as well as food, fuel and medical equipment for armies resisting China.  A more extreme scenario would assess the potential for India to get directly involved along their northern border, opening a new theater of war for China. While no deadline has been set to complete the study, the Indian military is under orders to finish it as soon as possible, one of the officials said.

Related: US and India Announce Defence and Technology Deals During Visit By Narendra Modi and Indian Stock Market Surges as Foreign Funds Buy Into National Growth Story and India Equity: An Unsung Long-Term Performance Story

It is unclear whether the normalization of churn that has already occurred will be sufficient to bring wage growth—and therefore consumer spending power—back in line with what would be consistent with the Fed’s inflation target. My preferred high-frequency measure of underlying wage growth has been the three-month average of the monthly change in average hourly pay for nonsupervisory workers outside of the retail, leisure, and hospitality industries. After hovering around 5% since last summer, it has come down sharply in the past three months to just 4% in June-August. That is encouraging news and seems to fit with the recent moves in the quit rate and the job openings rate.

Related: The Unresolved Tension Between Prices and Incomes and Rate Cuts and The Unexpected Compression: Competition at Work in the Low Wage Labor Market